Retirement Without Savings?

It may not be ideal, but it's the difficult reality for many Americans

What would retirement without savings look like? That's not as crazy a question as it may sound. A 2019 research study from Northwestern Mutual found that 22% of adults in the U.S. have less than $5,000 saved for retirement, while another 15% have no retirement savings at all. The same survey reported that, on average, people think there's a 45% chance they'll outlive their savings. Clearly, that's not an ideal scenario.

Key Takeaways

  • With your retirement possibly lasting 20 years or longer, saving for it is more vital than ever.
  • A lack of retirement savings might mean you need to scale back your lifestyle or downsize your home.
  • Many seniors without adequate retirement funds will need to take a part-time job if they're physically able to.

What Happens When You Don't Save for Retirement?

Retirement means the end of a steady income, which is why having a nest egg is so important. You may need up to 80% of your pre-retirement income once you stop working. So, for example, if your annual income was $100,000 when you were working, you will need up to $80,000 per year in order to maintain your lifestyle when you're out of the workforce. Without savings or a pension plan (which are rare), you would need to either continue earning money or cut way back on your spending.

For many people who enter retirement without any saved cash, their only source of income ends up being Social Security. The Center on Budget and Policy Priorities reports that for half of the seniors, it provides 50% or more of their income, while about 20% rely on it for 90% or more of their income.

Previously, many workers relied on corporate pension plans to fund (or at least partially fund) their retirements. However, those plans are becoming rarer and rarer. Some government jobs still have pensions, however, it is important to note that the earnings for those jobs may not have had Social Security taxes withheld, and therefore may decrease your Social Security benefit.

Living Mostly on Social Security

With the average monthly Social Security retirement benefit check at $1,509 as of June 2021, it can be a big shock to seniors who were used to bringing in much more. On average, Social Security replaces just 40% of a retiree's pre-retirement earnings. Although there are ways to maximize it, Social Security still functions best as an adjunct to personal savings. When you consider healthcare costs like Medicare premiums, basic living expenses like food and housing, personal debt, and other financial obligations many seniors carry, it's clear why living solely (or mostly) on Social Security simply may not work.


The average monthly Social Security benefit in 2020.

You May Need to Downsize Your Lifestyle

Without savings, it will be difficult to maintain in retirement the same lifestyle that you had in your working years. You may need to make adjustments such as moving into a smaller home or apartment; forgoing extras such as cable television, an iPhone, or a gym membership; or driving a less expensive car.

For many seniors, downsizing to a smaller house is not enough. They need to sell their homes and move in with their adult children. Without a new home to purchase, the sale of a house can, one hopes, provide a good nest egg.

Taking on a Roommate Might Be Necessary

Seniors who have not saved extra for retirement, and who still own homes, can turn to their homes as a source of income. For some, this could mean renting a portion of their space as a separate apartment. For others, it could result in taking on a roommate. Both can be fraught with risks.

Being a landlord is fine if you don’t mind sharing space, but if you are the type of retiree who values peace and quiet and doesn’t like to share, renting a room could be a bitter pill to swallow. Another option is to take a reverse mortgage on a home, although doing so can be costly and complicated.

You Might Have to Continue Working Part-Time

To keep up with your basic expenses in retirement you might need an extra income stream. This could mean going back to work or getting a part-time job. The Internet makes it easier than ever for seniors to work remotely. Retailers are also more than willing to hire retirees because they tend to be reliable and loyal. However, working is not feasible for all seniors, especially those in poor health.

Retirement Might Not Even Be on the Table

If you have not saved money for retirement and are not willing to overhaul your lifestyle, then retirement might not be an option for you at all, particularly if Social Security isn’t enough to live on. Many people forego retirement and work for as long as possible, largely because they don’t have enough saved.

The Bottom Line

Retiring without savings requires a lot of sacrifices. Social Security does not provide enough money for most people to maintain their pre-retirement lifestyles, so retiring with that as your sole source of income will require big changes. For some people, making those changes and even continuing to work part-time will provide them with enough to survive. For others, a lack of retirement savings will mean forgoing retirement altogether.

Article Sources
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  1. Northwestern Mutual. "Planning and Progress Study 2019."

  2. Fidelity. "How much will you spend in retirement?"

  3. Center on Budget and Policy Priorities. "Policy Basics: Top Ten Facts about Social Security."

  4. Economic Policy Institute. "Private-sector pension coverage fell by half over two decades."

  5. Social Security Administration. "Retirement Benefits: Information for Government Employees."

  6. Social Security Administration. "Monthly Statistical Snapshot."

  7. Social Security Administration. "Learn About Retirement Benefits."

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